Monte-Carlo Analysis for Expected Return

February 12, 2013Dr. Lisette Cooper

Athena Capital Advisors LLC55 Old Bedford Road, Suite 302Lincoln, MA 01773Tel 781.274.9300Athenacapital.com

Understanding the Outsourced CIO Model

Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission. | ► 2

Monte-Carlo Analysis for Expected Return

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Simulated $100 Million Portfoliowith 5% Annual Spending

Expected Porfolio Return of 7.6%Expected Porfolio Return of 5.6%

10,000 simulations, median case.


Management Model of Foundations & Endowments

The management model of a foundation endowment ranks with asset class allocation as a key determinant of long-term

performance.

Source: The Commonwealth Funds and Adapted from J. E. Craig, Jr., “Treasurer’s Report,“ The Commonwealth Fund 1994 Annual Report.


Time

Complexity of Investing Over Time

Inflation Risk


Time


Inflation RiskLiquidity RiskInflation RiskCompany Risk

Harvard Allocation Over Time

| ► 6Athena Capital Advisors LLC Proprietary and Confidential. Not to be copied or distributed without express written permission. Please see important disclosures and disclaimers at the end of this presentation.

Harvard Allocation 1980 1995 2005 2012Domestic Equities 66% 38% 15% 12%Foreign Equities 15% 10% 12%Emerging Markets 5% 5% 12%Private Equities 12% 13% 12%Total Equity 66% 70% 43% 48%Absolute Return 0% 12% 16%Commodities 6% 13% 14%Real Estate 7% 10% 9%Total Real Assets 13% 23% 23%Domestic Bonds 34% 15% 11% 4%Foreign Bonds 5% 5% 3%High Yield 2% 5% 2%Inflation-Indexed Bonds 0% 6% 4%Total Fixed Income 34% 22% 27% 13%Cash -5% -5% 0%TOTAL 100% 100% 100% 100%


Time


Inflation RiskLiquidity RiskInflation RiskCompany Risk


Time


Inflation RiskGeo-political RiskLiquidity RiskInflation RiskCompany Risk

Liquidity RiskInflation RiskCompany Risk


Time




BondsU.S. StocksForeign StocksReal Estate

Currency RiskGeo-political RiskLiquidity RiskInflation RiskCompany Risk


Time






BondsU.S. StocksForeign StocksReal Estate Venture Capital Political Risk

Currency RiskGeo-political RiskLiquidity RiskInflation RiskCompany RiskLeverage Risk


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BondsU.S. StocksForeign StocksReal Estate Venture Capital Political Risk

Currency RiskGeo-political RiskLiquidity RiskInflation RiskCompany RiskLeverage Risk

BondsU.S. StocksForeign StocksReal Estate Hedge FundsPrivate EquityVenture Capital

Credit RiskManager RiskPolitical RiskCurrency RiskGeo-political RiskLiquidity RiskInflation RiskModel RiskCompany RiskLeverage Risk

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UniversityFY 2011

EndowmentCIO Length of Time (years)

Compensation of CIO

President’s Salary

Harvard $32 B 4.5 $4 MM $875 kYale $19 B 27 $4 MM $2 MMPrinceton $17 B 17 $2 MM $900 kStanford $16 B 6 $3 MM $1 MMMIT $9 B 6 $1 MM $1 MMColumbia $8 B 10 $4 MM $2 MMUniversity of Michigan $8 B 13 $1 MM $930 kU of Pennsylvania $7 B 8* $1 MM $1 MMNotre Dame $6 B 23 $2 MM $475 kDuke $6 B 5 $2 MM $700 kCornell 5 B 2 $800 k $600 kWellesley College $1 B 4 $570 k $565 kGeorgetown $1 B 2 $650 k $1 MMWesleyan $615 k 3 $500 k $560 k

*The CIO resigned in October 2012 and they are currently seeking a new CIO.

Endowment CIO Tenure and Pay


Five Models of Investment Management

1.Solo Investment Committee Model

2.Investment Committee – Investment Consultant Model

3.Investment Committee – Internal Financial Staff – Investment Consultant Model

4.Internal CIO

5.Outsourced CIO


1. Alignment

2. Acumen (really smart!)

3. Access to Special Investments

4. Real Results

5. Happy Real Clients

5 Tests: Real vs. False Outsourced CIO


Real vs. False Outsourced CIO

Real CIO False CIOAlignment Fee based, Independent,

Conflict FreeNo independent, not fee based and sells their own products

Acumen (really smart) Qualified staff, excellent analytics and risk management in their DNA

Primarily marketing people, great for dinners and golf, trot out someone smart every now and then

Access to Special Investments

The firm is large enough to have access to the best and brightest managers, but nimble enough that they can provide access in a meaningful way

Too small, too large or only offer access to their own proprietary products

Real Results They have a track record that they will stand behind and slice and dice it any way you want

No results to show, only pro-forma results to show or they have a track record but won’t show it because it is too complicated

Happy Real Clients They have them! The firm has not been in business long enough to have referenceable clients

Contact Information

Athena Capital Advisors Athena Capital Advisors55 Old Bedford Road, Suite 302 767 Third Avenue, 36th FloorLincoln, MA 01773 New York, NY 10017781.274.9300 917.414.1512www.athenacapital.comwww.athenacapital.com

Lauren Casper Zung T. [email protected]@athenacapital.com

For further information, please contact:


Disclosures and Disclaimers

The summary description of Athena Capital and the information included herein, and any other materials provided to you, are intended only for discussion purposes and are not intended as an offer to sell or a solicitation of an offer to buy with respect to the purchase or sale of any security and should not be relied upon by you in evaluating the merits of investing in any securities. These materials are not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use is contrary to local law or regulation.

This summary is not intended to be complete, and material aspects of the descriptions contained herein may change at any time. The information herein is not intended to provide, and should not be relied upon for, accounting and legal or tax advice or investment recommendations. You should consult your tax, legal, accounting or other advisors about the matters discussed herein.

Investing in financial markets involves a substantial degree of risk. There can be no assurance that the investment objectives described herein will be achieved. Investment losses may occur, and investors could lose some or all of their investment. Nothing herein is intended to imply that investments of this type may be considered "conservative," "safe," "risk free" or "risk averse." No regulatory authority has passed upon or endorsed this summary or the merits of this information.

The examples of investments included in this summary have been provided for discussion purposes only and are no guarantee of future results or that such investment opportunities will become available.

Distribution of this information to any person other than the person to whom this information was originally delivered and to such person's advisors is unauthorized, and any reproduction of these materials, in whole or in part, or the disclosure of any of the contents, without the prior consent of Athena Capital in each such instance is prohibited.

Circular 230 Disclosure: To ensure compliance with Treasury Department regulations, we inform you that, unless specifically indicated otherwise, any tax advice contained herein was not intended or written to be used and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or applicable state or local tax provisions, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Athena Capital Advisors does not provide legal advice and the information contained herein should only be used in consultation with your legal, accounting, and tax advisors.


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Monte-Carlo Analysis for Expected Return